Power shift - The clean energy debate in association with HP, Part 1 of 2

21 May 2010Archived News Energetics in the News

PUBLISHED: The Deal Magazine, Jonathan Jutsen, Executive Director, Energetics Pty Ltd was recently part of a panel discussion on clean energy for The Australian, this is the transcript from that discussion.

The Rudd government's emissions trading scheme may have been deferred and international negotiations on climate change treaties may have stalled - but the global transition to a low-carbon economy is actually accelerating. The shift is being driven as much by the need for energy security and the chance to win a share of the growing market for clean technology as by the desire to curb greenhouse gas emissions.

In this special report, a panel of experts convened by the deal discusses how companies here compare with their international peers and what governments should be doing to provide the right signals and incentives to allow our leading businesses to compete effectively at home and abroad.

With the ETS on hold till 2012, where else should the government focus - on energy efficiency, building codes and fuel regulations? Or should there be a grander vision for a clean energy network? And how do you create a sustainable economy in a world with limited resources? Perhaps it's time to change the measuring stick. Economic growth, our primary reference point for success or failure, is measured in terms of production and consumption. But even leading bankers think GDP and GNP data are missing a key part of the equation. They want new metrics to help ensure environmental, social and economic losses do not outweigh simple economic gains. Carbon might not be the only external value or commodity we need to factor in.

What follows is an edited transcript of the discussion. For extended coverage, visit theaustralian.com.au/politics/climate.

The Panel

  • Oliver Yates, Executive Director, Utilities and Climate Change, Macquarie Capital Advisers
  • Brendan Bateman, Partner, Clayton Utz
  • David Caspari, Vice-President, HP Enterprise Services, South Pacific
  • Martijn Wilder, Head of Bake & McKenzie's Global Environmental Markets (Climate Change) Practice
  • Jon Jutsen, Executive Director, Business Development, Energetics Pty Ltd
  • Paul Simshauser, Chief Economist and Group Head of Corporate Affairs, AGL

Moderated by Giles Parkinson, who writes on business and the environment for The Australian.

GILES PARKINSON: We're heading towards an economic and energy transformation, but what will the main drivers be - climate change, energy security or a commercial race to seize the green-tech market?

OLIVER YATES: I think it will be a combination of all of them. The question of sustainability is cutting in and that includes the question of carbon. People are recognising that we have a limited global energy resource unless we can draw upon renewable sources. So that's where the energy security debate comes in.

Increasingly people see that we need to find a new way to power our economy and that there will be a carbon price sooner or later, and that if they want to be part of what could be the biggest industry transformation since the steam engine, then they should position their economy appropriately now, so they can get ahead of the curve. People see this - China certainly sees it.

BRENDAN BATEMAN: There are different drivers for different countries. The US is moving away from badging its legislation as being about climate change to being about energy security. In Australia we have plentiful resources of cheap coal and other forms to power our economy, so our directive has to be climate change. We are one of the countries most susceptible to the adverse effects of climate change and it affects a lot of our industries, including tourism.

DAVID CASPARI: No doubt we're blessed in Australia with an abundance of natural resources, and that is driving our economy now, but we have to take a step back and ask some questions about what the next phase of our economy is after this resource-oriented environment. Clearly climate change will be key, but there's a broader question about whether we can seize the opportunity to be a real innovator in this market and perhaps do that in a way that we might have missed over the past couple of decades, such as in solar power.

PARKINSON: Martijn, is climate change driving global movement now, or is this a race to grab the green-tech economy?

MARTIJN WILDER: It's a combination, [but] the other factor you need to put into the mix is the science. Throughout history, science has always driven regulatory changes. The science will continue to drive policy and the way companies assess risk. Population growth will have a significant impact. There's a limited amount of resources and if you combine what the CSIRO has said about Sydney, Brisbane and Melbourne becoming drier with increasing population, you have to find a way to manage that.

JON JUTSEN: I agree with Martijn.

We're getting to a situation where there is a huge test for mankind because we face a set of simultaneous challenges. We not only have climate challenge, which is the big daddy, but we have resource constraints.

And I don't think we should underestimate the fact that we are becoming increasingly dependent on oil imports ... so there's definitely a resource constraint in terms of transport fuels in Australia. Water availability is a big issue. We're looking at constraints on global fisheries and food supply - and population increases. So we have significant simultaneous challenges.

PAUL SIMSHAUSER: If you stand back and look at pretty much any Western government, when they're thinking about energy, they are looking at three drivers. The first is energy security and everything else is a very distant second. When lights start going out in the economy, it's a huge economic disruption and it's politically very unpopular. If it's severe enough, it will cause real problems for any ruling government. Fortunately in our country we're blessed with vast resources. We have something like 44 per cent of the known coal reserves in the OECD. We probably have the better part of 20 per cent of the known gas reserves; 30-odd per cent of the known uranium reserves; some of the best wind farm sites on the globe; and we're a sunburnt country.

So from a resources perspective and an energy security perspective, I don't think anyone in Canberra or any state government sits there and panics about energy resources - other than the point Jon made in relation to oil.

PARKINSON: The point about energy security is interesting because that seems to be driving a lot of what's happening overseas, even in the absence of legally binding international treaties.

WILDER: Binding targets are important as they set direction and will continue to do so. But the issue is the process itself and creating an adequate one in which to achieve an outcome in a reasonable timeframe. We're running out of time. That's the problem.

There are really only two other international agreements that deal with key economic issues - one is the WTO agreement and one is the Law of the Sea Convention. But trying to get agreement on climate in an international sense will be a slow process. So what is more likely to happen is what we're seeing now, the sort of breakaway where we have the Copenhagen Accord, which the major emitters signed and a lot of people have signed up to now. Eighty per cent of emissions are now caught underneath that. The international process is very important for getting consensus, but ultimately the real action will be at a domestic level. The question is to what extent those domestic frameworks stick to each other.

PARKINSON: Is Copenhagen still seen as the failure it was originally held to be? Or is it a solid foundation for action?

BATEMAN: What we'll now find is more multilateral and bilateral agreements that give effect and recognition to each nation's commitment and demonstrated achievement of particular targets. We'll start seeing a lot of these negotiated country agreements, based maybe around the G20 or something like that. Negotiations between these countries will take a more important role in achieving outcomes because the Copenhagen Accord is not binding, more of a pledge-and-review.

PARKINSON: Did you leave Copenhagen with a sense of despair? Has that been modified by what's happened since?

BATEMAN: There was obviously a sense of despair because a lot of people went there with a degree of optimism. But it was fairly clear for those who had studied what was happening in the lead-up that the ambition of getting a binding agreement to succeed Kyoto, or even a Kyoto II, was a bridge too far. But the Copenhagen Accord brought the key emitting countries into a general political agreement to achieve certain targets. And bringing the US, China, India and Brazil into agreement was a tremendous success.

PARKINSON: Oliver, you're focused on forests, forestry and the possibilities of international markets. How frustrating was Copenhagen and how do you see things evolving?

YATES: The clearest piece of legislation that was actually drafted and presented in Copenhagen was the REDD [reduced emissions from deforestation and forest degradation] agreement. We're seeing those ideas drafted into US legislation that will allow the generation of carbon credits through reducing the destruction of standing rainforests.

Although the destruction on the ground is accelerating, more and more people understand that you cannot keep running up a natural credit card bill of preposterous proportions. We have to put an end to this idea that an increase in GNP or GDP is good when no one values the other side. If, for example, I slaughter a rainforest in Indonesia, it increases Indonesian GNP and everybody claps, as if the economy is progressing. No one says that there is a debit to every credit. What is my net GNP growth? What am I taking away? What is that cost of production?

JUTSEN: An analysis done by the Chinese government last year showed that after taking into account environmental degradation in that year they had had net growth of 2 per cent - GDP showed growth of about 11 per cent but there was a 9 per cent loss in natural services.

PARKINSON: Is carbon the only thing we need to price? What else do we need to price to get those externalities working within those equations?

YATES: Carbon is easy when you're looking at industrial production because that's what we're concerned about. But if you're doing coal seam gas, for example, you have to look at the rise in salinity, the destruction of the aquifers. If you're talking about rainforests, you're talking about the loss of the water purification activity of the rainforest, the loss of habitat in which to retain biodiversity. Half the time we don't even know what's in these things. If you destroy a rainforest, you cannot replace it. These are things for which people need to somehow come up with a value, so we can look at the net benefit from economic activity before it starts.

PARKINSON: But we've been talking for decades about the need for a carbon price, and we haven't got there. How will we achieve prices for these?

YATES: I think there is a realisation that the credit card is bust. It's bust for food, it's bust for oil. We have massive population growth problems. It's becoming bust for water and it's going bust on the climate side. I don't think we are explaining to people that we have been taking, taking, taking from the globe. Sooner or later you have to pay and we will have to pay for this. But at the same time what annoys me is that we continue to claim we are progressing as an economy when there is still no accurate value put on our economic activity. There isn't the negative side of that value. Until you get the natural-value initiative under way and people understand what the natural values are, we won't be able to achieve that balance. But I think we're getting close. I think people are starting to understand that they've been having a good party but ultimately someone's going to have to pay and it's our turn.

PARKINSON: Should leadership on this issue come from governments or corporates or the general population?

It seems there needs to be a trigger.

WILDER: All of the above.

YATES: Governments will not act unless people jump up and down.

But ultimately it's a national problem.

If we can count the carbon that we're blowing up in the atmosphere, we should be able to count the natural destruction that we're doing on the ground each time we do it.

BATEMAN: We do have certain tools at the moment to be able to do that. We've had the principles of ecologically sustainable development around for some time and they exist in a number of NSW acts. Governments must have regard to those principles when deciding whether to approve a project.

CASPARI: You've spoken about that market failure to price environmental cost into our economic models. But ultimately the right response is going to require government. It will require the right economic pricing in the model. Then it will require the private sector to get on board. Business needs to start looking at this not in a negative way but as a tremendous opportunity, because driving environmental and sustainable outcomes and driving profit to the bottom line are not mutually exclusive. In fact, they're quite well aligned. So to the extent that we can get the private sector, companies such as ours, involved in driving some of that change, that's going to be a very strong catalyst.

WILDER: It's naive to think corporates will take any sort of leadership action without being required to do so. All the voluntary action programs have shown that corporates do not take action unless forced to by law and at the moment we're seeing a trend in which corporates are disbanding social responsibility and sustainability functions within their firms. We need very strong political leadership. We need governments prepared to get legislation through and corporates to then comply with that.

The other area that will become very important is youth - 50 per cent of the world's population is under 30. That is where a lot of hope for the drive for change will come. That's the generation that will be most affected by climate change. It has the most to lose. Its voice is important and it's growing.

JUTSEN: I got into this field through being involved at the time of the second oil shock and identifying that there would be limits to unfettered and inefficient growth and that there was going to be a whole marketplace established for the much more efficient use of resources. Thirty years later bugger all has happened and we don't have another 30 years to waste. This is the thing that concerns me.

I'm seeing a very big change. Professionals who have been in the business for the past 30 years are really angry - people like us. We've been in this field for a long time and now we're starting to see that there's a link up from all sorts of different professional areas, whether it be education, philosophy, psychology, natural resources in the energy area, the environmental area. [They] are saying: Look, we need to change the metrics. We're measuring the wrong stuff. We're driving our society and economy in a perverse direction at an increasing rate and we're concerned about the one planet that we have to inhabit. With issues like climate change, there isn't a rewind button.

View the video of the panel discussion.

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